Health insurance will be the next growth driver

Five-Year-old ICICI Lombard General Insurance has turned out to be the market leader among private companies. In terms of marketshare, it is only a couple of percentage points below its nearest public sector rival which has been in business for several decades. The company has distinguished itself from other players by building up a large health insurance portfolio, which now accounts for 17% of its total business.

From January 1 insurance companies would be free to charge whatever they want on most lines of insurance. How will detariffing impact customers and insurance companies?

In a detariffed scenario, insurance companies will arrive at premiums based on their assessment of risk. Customers with a good risk profile would enjoy lower premiums. At the corporate level, intra-portfolio cross-subsidisation would be replaced by product level pricing, as a result of which fire insurance premiums could see some reduction. Conversely, group health and marine cargo insurance premiums could move up. Motor insurance will gravitate towards risk-based pricing.

Now that the insurance company has got the much-awaited hike in third-party insurance rates, would you look at lowering rates for comprehensive (own damage) cover for motor vehicles?

The industry so far has operated under the comfort of an anchor tariff rate and will now move from a transaction-based approach to a P&L-driven approach. It is difficult to predict in which direction the overall premiums would move, and at an individual level, it would also depend on the specific risk profile.

Would deregulation of pricing in motor insurance mean that rates will vary across customers? What would be the factors which will determine pricing of insurance cover for a vehicle?

Factors that will influence pricing will include make and model of the car, location of risk and the customer profile such as lifestage and occupation as well as usage of vehicle. Insurance companies are preparing their risk-rating engines and will start implementing them in the detariffed environment.

India has a very low level penetration of personal insurance. Yet, insurers complain that the biggest personal insurance — health is unprofitable. How do you plan to make health insurance profitable and increase penetration at the same time?

After detariffing, group health insurance will no longer be subject to cross subsidisation and will find its own price level based on standard underwriting norms. As far as retail health insurance is concerned, insurance companies have the flexibility to define the coverage and premiums according to the performance of the portfolio.

The task lies with the insurers to expand and build the health insurance category. This will result from segmentation of customer needs and development of innovative and relevant value propositions. Systemic changes such as standardisation of procedures, availability of claims data for product development and streamlining of claims administration coupled with higher customer awareness of the category benefits will be the drivers for the development of health insurance in the country. Collaborative partnerships between insurers, health care service providers, the government and community-based organisations will help reach out to a wider audience from the point of view of distribution as well as claims servicing.

What is ICICI Lombard’s strategy for health insurance?

There are four broad kinds of health insurance models currently operating in India: voluntary health insurance, employer-based group insurance, community/NGO-based schemes and government-run schemes such as ESIS/CGHS. Insurance companies are present in the first three, but in future can also play a role in administering the government-run schemes. We believe that health insurance will be the next growth driver for the general insurance industry and our intent is to be present in all the models and evolve the right product, process and service solutions for each.

You do not have the distribution reach of a bank or a life insurance company. How do you plan to increase sales of policies under personal lines?

ICICI Lombard follows a multi-channel approach at the retail level, including agents, brokers, bancassurance, alliances, direct field force, internet and tele sales. We work very closely and in a collaborative manner with our bancassurance partners to reach out to their wide customer base with tailored insurance solutions. In rural areas, we have tied up with NGOs, MFIs, SHG and banks on the ground, and also administer a number of state government welfare schemes that have enabled us to cover over 100 million rural Indians.

Do you see profits of insurance companies coming under strain next year because of deregulation?

Profitability of insurance companies in a deregulated market will be a function of the strategies adopted by each insurer. Those companies that focus on differentiating themselves, in the minds of the customer, through excellent customer service, robust distribution, innovative products and building a strong brand image will face lesser price sensitivity. In addition, the overall cost management with emphasis on prudent underwriting, operational and distribution efficiencies, leveraging economies of scale and cost-optimisation will give a positive fillip to the bottomline.

State-owned insurance companies have enormous clout in terms of balance sheet strength. How do you plan to compete with these giants in a free-for-all kind of situation?

State-owned insurance companies have played a vital role in developing the general insurance industry in the country delivering double-digit industry growth throughout. They will leverage their balance sheet strength in a detariffed scenario, especially for the large risks in the corporate sector. These companies also have a strong customer franchise and would continue to be significant players in the industry. We will continue to focus on customer needs and delivery of cost effective risk management solutions.

ICICI Lombard has been making profits for a few years now. When do you plan to take the company public?

The decision to take the company public will be taken by our shareholders in keeping with the regulations and guidelines. As a company, we would continue to strive for quality growth.

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